02.11.11
Posted in Litigation, Real Estate Law at 15:22 by Administrator
Q. I am attempting to negotiate a short sale agreement with my mortgage lender, as the California home that I own is now worth much less than the balance of my mortgage loan. The lender, as a condition of agreeing to a short sale, wants me to sign a promissory note which would obligate me to repay the difference between what is owed on the first trust deed and the short sale price. Is this legal?
A. The California legislature, during 2010, passed Senate Bill 931 (SB931), which, effective January 1, 2011, created and added section 580e to the California Code of Civil Procedure. The purpose of Section 580e appears to have been to prevent mortgage lenders from obtaining deficiency judgments – civil court judgments for the difference between the payoff amount due on a mortgage loan and the (lesser) sale price of the home (deficiency amount) – where the lender accepts an amount less than the loan payoff when releasing its security interest in a residential property.
The perceived need for Section 580e arose, apparently, from the practice of mortgage lenders, such as your lender, requiring borrowers to execute an unsecured promissory note in an amount equal to the deficiency amount, as a condition of agreeing to a short sale transaction. Section 580e, ostensibly, solves this “problem.” But does Section 580e, perhaps unintentionally, create another problem? Will this new statute actually do what it purports to do? Let us look at two issues.
First, any law which prohibits mortgage lenders from attempting to recover deficiency amounts in this fashion creates a disincentive for lenders to accept short sale agreements. California may be able to force mortgage lenders to forgo attempted recovery of short sale deficiency amounts; however, the state may not (at least not yet) force mortgage lenders to enter into short sale agreements. Thus, the foreseeable result is an increase in foreclosures above that which would have occurred in the absence of Section 580e.
Second, this new statute may not actually accomplish that which it purports to accomplish. Section 580e provides only that “[n]o judgment shall be rendered for any deficiency under a note secured by a first [deed of trust or mortgage] . . . [and that agreement to a short sale] shall obligate [the mortgage lender] to accept the sale proceeds as full payment and to fully discharge the remaining amount [on the secured loan]. (Underline added.)
It is not inconceivable that some mortgage lenders might take the position that Section 580e does not in any way affect their short sale protocols. The argument would go something like this: the mortgage lender did accept proceeds from the short sale as full payment of the secured note and did fully discharge the remaining (deficiency) amount due on the secured note. The unsecured note – which was executed after the remaining amount due on the mortgage loan had been fully discharged – is a new and different promissory note, is fully enforceable, and that any judgment entered thereon (were the former homeowner to default on that note) would not be a judgment for a “deficiency under a note secured by a first deed of trust or first mortgage for a dwelling” but, rather, would simply be a judgment on an ordinary, unsecured note.
Because Section 580e is but a few weeks old, no appellate (or other) court cases interpreting the statute have been decided as of this writing. Borrowers and real estate professionals should continue the prudent practice of obtaining the assistance of an attorney when considering any short sale transaction.
*Anthony F. Earle, Esquire is a California attorney and real estate broker who maintains a practice in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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02.02.11
Posted in Litigation at 19:58 by Administrator
Q. My legal life needs some help. My spouse and I have decided to divorce. Also, unrelated to the divorce, my small business has a contract dispute with another business. I can’t afford a lawyer, can’t afford a long, drawn-out court case(s), and just want a fair resolution for both my divorce and contract case. What options do I have?
A. There are many alternatives to traditional court proceedings which are available to litigants such as yourself, who seek to resolve disputes without investing the time and expense required by traditional litigation. Broadly speaking, these methods are known as Alternative Dispute Resolution (ADR).
Methods of ADR include traditional mediation, collaborative law processes, arbitration (binding and non-binding), and private judging. One common requirement for all private (e.g., non-court-ordered) ADR processes is the willingness and consent of adverse parties to participate in the process. One party, whether plaintiff or defendant, may not compel an unwilling adverse party to participate in ADR. One exception to this rule is where a party to a contract consents in the contract to arbitration, but later withdraws that consent. Usually, the attempt to withdraw consent will not be given effect. Many (if not most) courts now require all parties to participate in some form of non-binding ADR before the court will schedule a trial date.
For purposes of this discussion, the types of ADR are either non-binding or binding. Non-binding ADR can be defined as any method of dispute resolution which requires the agreement of each party in order to resolve the case. Arbitration where one or more parties can reject the arbitrator’s decision and force the case back into court is an example of non-binding ADR. Other examples include mediation and collaborative law processes, both of which require the parties to affirmatively accept settlement terms. A significant drawback of non-binding ADR is the potential additional expense involved if the process fails and the parties end up back where they started: in court. This consideration is made more acute where, as in most family law cases, the court may order one party to pay some or all of the other party’s attorney fees and costs.
Binding ADR, that is, binding arbitration or private judging, effectively solves the problem of increased costs due to one or more parties rejecting a non-binding resolution of a case. But in solving one problem, other potential problems are created.
The significant issue presented by binding arbitration is that the arbitrator’s decision – right or wrong, correct or incorrect – will, in all likelihood, be final and non-appealable. On the other hand, one possible advantage is that statements made during arbitration are privileged and, thus, may not used outside the context of the arbitration.
Private judges are persons who are not judicial officers; that is, private judges have not been appointed or elected to a judgship. Rather, they are private persons, usually attorneys with significant knowledge and experience in a particular area of law, whom the parties to a particular dispute authorize to act as a judge and decide contested issues. Unlike an arbitrator’s decision, the decision of a private judge is appealable in the same manner as would be the decision of an elected or appointed judge. Proceedings conducted by private judges do not enjoy the same confidentiality as arbitration proceedings.
Regardless of which form of ADR parties to a lawsuit may choose to use, each party still retains the right to be represented by an attorney. However, if the goal is to resolve a dispute as economically as possible, perhaps because a final decision is needed but the amount in controversy is not too great, some or all parties may simply want to act as their own attorney.
*Anthony F. Earle, Esquire is a California attorney and real estate broker who maintains a practice in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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01.26.11
Posted in Litigation, Real Estate Law at 17:22 by Administrator
Q. I hired a general contractor to perform some remodeling work at my California home. Although I have paid the general contractor a large sum of money, I have concerns that the general contractor may not be paying the sub-contractors. What are my rights? What can I do to protect myself?
A. California law, as you may be discovering, provides significant protection for those who provide labor or materials for the development or improvement of real property. The public policy on this issue is so strong that the right to mechanics’ liens is found, in the first instance, in the California Constitution.
The current mechanics’ lien statutes, which implement the right found in the state constitution, have been in effect since 1969. The statutes are a bit complex and have been criticized for not providing sufficient protections for property owners such as yourself. Recent revisions to the law may, however, provide property owners with some relief.
Assembly Bill 457, which became effective January 1, 2011, amended California Civil Code §§ 3084 and 3146, which relate to the enforceability of mechanics’ liens on private (non-governmental) projects. The provisions of AB 457 impose a new requirement that contractors (including sub-contractors) must now give the owner of the property notice of a lien. Additionally, a notice of pending action (lis pendens) must now be recorded no later than 20 days after the filing of a lawsuit to enforce the lien. The requirement that a lawsuit to enforce the lien be filed no more than 90 days after the recording of a mechanics’ lien remains unchanged.
Other major changes mandated by AB 457 are that: (1) certain mandatory language is now required in mechanics’ liens, the purpose of which is to set a minimum level of disclosure regarding the nature of the claim; (2) the lien must now be served on the property owner by registered or certified first-class mail; (3) a proof of service must accompany the lien; and (4) failure to serve the property owner with a copy of the lien renders the lien “unenforceable as a matter of law.”
Further changes to the mechanics’ lien law are scheduled to become effective July 1, 2012.
Although property owners now have significantly greater rights since AB 457 became law, the procedural labyrinth associated with mechanics’ liens and related lawsuits to enforce such liens, can still be quite daunting. As such, you should retain an attorney to assist you with your case, if at all possible.
*Anthony F. Earle, Esquire is a California attorney and real estate broker who maintains a practice in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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01.22.11
Posted in Family Law, Litigation at 18:41 by Administrator
Q. I am planning to get married soon. My future spouse and I are considering whether to enter into a prenuptial agreement. What should we know about such agreements? Do we need an attorney?
A. In California, martial property is governed by community property laws (as opposed to the common law of marital property). “Community property” is defined as “all property acquired by a married person during marriage while domiciled in California,” Family Code § 760, except for certain limited exceptions.
Participation in the California community property system is voluntary. Married persons who agree to do so, may opt out of the community property system. The reasons a couple might choose to opt out are many and varied, and include routine business purposes such as asset protection. See, http://earlelaw.com/Newsletters-2010/EarleLaw-Newsletter-2010-29.pdf.
The method for opting out of California’s community property system is the marital agreement. Martial agreements may be entered into either before or during marriage, although more stringent procedures apply once the parties to the agreement marry each other.
In addition to opting out of the community property system of marital property, couples also may address the issue of spousal support (alimony) in their marital agreements. Although waivers of spousal support are allowed, a court may refuse to enforce waivers in exceptional circumstances.
Additionally, any provision of a marital agreement which is deemed “promotive of dissolution [divorce]” will not be enforced. Whether a provision (or the entire agreement) is, on the one hand, unenforceable because it is promotive of dissolution or, on the other hand, enforceable because it merely “reorders property rights” often requires a very fact-specific analysis.
The rules relating to marital agreements have changed significantly over the years and often are not intuitive. For example, prior to the year 2001, a premarital agreement was enforceable as long as it was: (1) entered into voluntarily, (2) not unconscionable, and (3) the party against whom enforcement is sought had actual or constructive knowledge of the other party’s assets, unless a valid waiver had been executed.
In the year 2000, the California Supreme Court held that a premarital agreement between major league baseball player Barry Bonds and his wife, whose native language is Swedish, was enforceable, even though the agreement was executed on the eve of the parties’ wedding and despite the fact that Bonds’ fiancé had not been represented by an attorney. The California legislature responded by enacting more stringent procedures which must be followed when parties enter into premarital agreements. One such provision deems an agreement to have not been entered into voluntarily – and thus unenforceable – unless the person against whom enforcement of the agreement is sought had at least seven days to review the agreement before signing it, and was advised to seek the advice of an attorney.
The statutory language of the 2000 amendments is sufficiently vague so as to allow for several different, yet reasonable, interpretations of its requirements. One such ambiguity involves whether the seven day waiting period starts anew each time a revised draft of a proposed agreement is presented by one party to the other. This situation typically arises when, as negotiations progress, changes are made to the original proposed agreement.
In the recent case Cadwell-Faso v. Faso, A126524 (California Court of Appeal, First Appellate District, January 11, 2011), the court avoided the issue by holding that, because the waiting period was designed to protect unrepresented persons, it does not apply where, as in Caldwell v. Faso, each party was represented by counsel during negotiation of the agreement’s terms.
Due to the substantive and procedural complexities of the law, couples who contemplate entering into a marital agreement should each retain separate counsel.
*Anthony F. Earle, Esquire is a California attorney and real estate broker who maintains a practice in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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01.13.11
Posted in Bankruptcy, Litigation, Real Estate Law, Taxation Law at 08:48 by Administrator
Q. I own a California home, but like many residential properties, the value of my home has declined so much that I now owe much more on it than what it is worth. I have two mortgages on this property, a “first” and a fairly sizable “second” loan. Fortunately, I have access to a modest amount of cash, which I could use as a down payment on a new home. I am considering the purchase of a new house to use as my principal residence, so I can take advantage of the current “buyers’ market” for residential housing. If I purchase a new home, I would consider converting my current home into a rental property. What are the possible legal issues associated with this strategy?
A. Your idea sounds like a good one. It is also an idea many homeowners in your situation are considering. However, there are at least three potential complications associated with the strategy you describe.
Because you are “upside down” with respect to your current home, that is, you owe more against that property than it currently is worth, chances are that the rent it will generate will not be sufficient to pay the mortgages. Thus, it is likely you will have a monthly loss associated with that property, a loss which you will have to cover from other income or assets.
This likelihood of negative cash flows creates the possibility of the first legal issue: eventual foreclosure.
Second, in the event of a foreclosure on your current California home/prospective rental property, you may or may not be exposed to a deficiency judgment with respect to the first loan. A deficiency judgment is a civil judgment for the difference between the amount owed on a property and the amount ultimately obtained for that property at a foreclosure sale.http://earlelaw.com/news_family.html.
Regardless of the status of your first loan, there is a significant likelihood that you may be subject to a deficiency judgment with respect to the second, or junior, loans on this property.
Any California deficiency judgment obtained against you will be valid for 10 years, and can be renewed for additional 10 year periods.
Furthermore, a deficiency judgment can be recorded as a lien against your new home, or against any other interest in real property which you may own, purchase, or acquire. Any lien recorded against a parcel of real property must, of course, be satisfied before that property can be sold.
Third, there are potential tax consequences, relating to the cancellation of debt, which might require that you pay income tax on any deficiency amount related to a foreclosure, even if a deficiency judgment is not obtained.
Whether you are a home/property owner who is in the undesirable position of deciding what to do with a distressed property, or a lender (institutional or private) who owns distressed loans, you would be well-advised to consult with an attorney before embarking on a course of action designed or intended to mitigate your monetary loss.
*Anthony F. Earle, Esquire is a California attorney and real estate broker who maintains a practice in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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01.07.11
Posted in Family Law, Litigation, Real Estate Law at 14:53 by Administrator
Q. My spouse purchased a house, taking title as the sole owner. In order to assist my spouse in acquiring title to the house, I signed a quitclaim deed in reliance on my spouse’s oral promise to add my name to the title after the purchase had been completed. My spouse never did add my name to the title and now, we are contemplating divorce. If we do divorce, will the court consider the house to be my spouse’s separate property or will the house be considered marital property?
A. The situation you describe is quite common. Husbands and wives often purchase real property during marriage, while taking title to the acquired property in the name of only one spouse. Typically, this is done to facilitate financing, where the interest rate on the loan obtained to finance the property is lower if only one spouse’s name is on the title.
As a general matter, the law presumes that title to property is held in the manner described in the deed. California Evidence Code § 662. This presumption may be rebutted with clear and convincing evidence, a standard which is higher than the preponderance of the evidence standard which applies to most civil cases, but lower than the beyond a reasonable doubt standard which applies in criminal cases.
Married persons may, of course, purchase property from third parties. Married persons may also enter into transactions between themselves. However, different legal rules apply to these very different types of transactions. When married persons, either individually or jointly, purchase property from third parties, “normal” contract rules apply: transactions are presumed to have been made at “arms length” and no special relationship usually exists between buyer and seller.
In California, spouses owe each other a “fiduciary duty”, California Family Code § 721, which is the highest duty the law can impose on one’s relations with another. This duty owed by each spouse to the other is that of the highest good faith and fair dealing, and requires that neither take any unfair advantage of the other.
To give effect to this fiduciary duty, California law presumes that any interspousal transaction that advantages one spouse over the other was the product of undue influence. Undue influence, in turn, comes in many legal flavors, one of which is the use of confidence or authority to obtain an unfair advantage. California Civil Code § 1575. A spouse who gained an advantage over the other spouse may rebut this presumption by a preponderance of the evidence.
The presumption relating to transactions between spouses, created by Family Code § 721, trumps the presumption relating to title, created by Evidence Code § 662.
Thus, in the situation you describe, a California court should find that the house is community property, subject to equal division. Your spouse, however, is entitled to reimbursement of any of your spouse’s separate property funds which were used, for example, for the down payment which was needed to purchase the house.
The legal issue described above was addressed by the California Court of Appeal in Starr v. Starr, B219539 (Second Appellate District; filed September 30, 2010, published October 15, 2010). A copy of the court’s opinion may be downloaded without charge at: http://earlelaw.com/news_family.html.
*Anthony F. Earle, Esquire is a California attorney and real estate broker who maintains a practice in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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12.22.10
Posted in Litigation, Real Estate Law at 10:29 by Administrator
Q. I own a California home which currently is worth less than what I owe on the loan which is secured by the property. Will the new California short sale deficiency law make it easier for me to negotiate a short sale agreement with my lender?
A. California Senate Bill (SB) 931, which makes it unlawful for mortgage lenders to require borrowers, as a condition of approving or accepting “short sale” agreements, to repay deficiencies, has been signed into law and, on January 1, 2011, will become section 580e of the California Code of Civil Procedure.
For purposes of section 580e, a “short sale” is defined as a transaction in which a mortgage lender agrees to release its security interest in a parcel of real property, while accepting less than the outstanding balance due on the loan which is secured by that property. A “deficiency” is the difference between the outstanding amount due on the mortgage loan and the lower amount which is realized from the sale of a property which has declined in value.
Section 580e provides, in relevant part: “No judgment shall be rendered for any deficiency under a note secured by a first deed of trust or first mortgage for a dwelling of not more than four units, in any case in which the trustor or mortgagor sells the dwelling for less than the remaining amount of the indebtedness due at the time of sale with the written consent of the holder of the first deed of trust or first mortgage.”
Section 580e will apply to residential properties consisting of one to four units, which need not be owner-occupied. Unlike prior law, section 580e will apply to refinanced loans as well as purchase money loans. However, section 580e will apply only to first loans, and not to second or other junior loans. The protections of section 580e also will not be available in cases in which the borrower has committed fraud.
Although the provisions of section 580e may, at first, appear to be favorable to owners of distressed residential properties, section 580e may actually make it more difficult for these borrows to convince lenders to accept short sale agreements.
Under prior law, lenders could use short sale agreements to convert what had become partially worthless secured loans (”underwater” mortgage loans) into a potentially valuable unsecured loans (short sale agreements with a deficiency repayment clause). Because section 580e purports to eliminate the ability of lenders to attempt to mitigate their losses in this fashion, there will be less incentive for lenders to accept short sale agreements.
In the end, section 580e may actually cause an increase in the number of California foreclosures, especially in cases where a deficiency judgment is otherwise allowed by law.
*Anthony F. Earle, Esquire is a California attorney and real estate broker who maintains a practice in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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12.11.10
Posted in Criminal Law, Family Law, Litigation at 13:41 by Administrator
Q. What remedies might the law potentially provide to victims of domestic violence?
A. Claims for the redress of domestic violence are, at their core, claims to redress intentional, wrongful conduct.
Acts of domestic violence often constitute violation of the criminal law. When police are asked to assist, an officer may, among other things, obtain an emergency protective (civil restraining) order (EPO) for the victim. EPOs are issued ex parte, that is, without affording due process – the right to a hearing – to the person against whom the order is issued. Accordingly, EPOs are valid only for a short period of time.
If unmarried, the victim can request a permanent restraining order by filing appropriate papers in the family law division of the local Superior Court.
If married, the victim may file for divorce and seek a permanent restraining order as part of the divorce action. Alternatively, if a restraining order, but not a divorce, is desired, the married victim may may request a restraining order using the same procedure as would an unmarried person.
In all cases, the victim may also file a separate lawsuit for civil damages against the alleged abuser, as acts of domestic violence typically constitute civil wrongs such as assault and battery.
The reason two or three separate lawsuits may be needed is because no single division of the Superior Court has the ability to order all relief which may be available. For example, the criminal division can enter a judgment of criminal conviction for the crimes of assault and battery, but may not award money damages (however, a criminal court can issue protective and restitution orders). Similarly, a civil court can award civil damages – damages which include, but are not limited to mere restitution – but may not find a defendant guilty of a criminal offense or dissolve a marriage (divorce).
The family law division may dissolve a marriage, issue protective orders, make child and spousal support orders, and make child custody and visitation orders, but it may not award money damages.
The recent appellate case Boblitt v. Boblitt, C061307 (Third Appellate District, Nov. 30, 2010) addressed the issue of similar, and sometimes overlapping, relief which is available in domestic violence cases in California civil and family law courts.
Steven Boblitt and Linda Boblitt separated after a long marriage. During the ensuing divorce action, Linda sought an award of spousal support (alimony). In ruling on Linda’s request for spousal support, the family court considered evidence of alleged domestic violence, one of many statutory factors courts must consider in such cases. Although Linda received an award of spousal support, the family court did not make any findings regarding Linda’s allegations of domestic violence.
Linda then brought a separate civil lawsuit against Steven, in which she again alleged Steven had committed domestic violence against her. Steven moved to dismiss the civil action, claiming that Linda’s allegations of domestic violence had been fully litigated in the divorce case.
The appellate court disagreed with Steven, noting that the primary right Linda sought to vindicate was different in each case, notwithstanding that allegations of domestic violence were common to both cases. The court said that Linda’s civil action sought to vindicate her right to be free from personal injury, while her marital action sought to vindicate her right to, among other things, spousal support. Because the primary right Linda sought to vindicate was different in each case, Linda was allowed to proceed with both cases.
Given the often complex procedural issues associated with litigating domestic violence claims, it is advisable that plaintiff and defendant each obtain their own attorney.
In restraining order and divorce cases, the court may order the person who committed domestic violence to pay the victim’s attorney fees. In civil lawsuits, the plaintiff may be able to pay attorney fees on a contingency basis, from proceeds ultimately received from the defendant.
*Anthony F. Earle, Esquire is a California attorney who practices in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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11.19.10
Posted in Litigation, Real Estate Law at 20:00 by Administrator
Q. I have seen conflicting news reports on how courts are handling residential home foreclosure cases in which the owner/borrower, in defending against foreclosure, has asked the court to require their lender to show the promissory note as a condition of being allowed to proceed with a foreclosure action. Why does there seem to be a lack of consistency in reports on this issue?
A. Promissory notes, such as notes used to finance real estate, are contracts. In exchange for lending money, borrowers promise to repay the borrowed money, with interest. So-called “show-the-note” litigation stems from the very simple idea that when a party to a contract sues to enforce the contract, the party bringing the lawsuit must prove to the court that a contract, in fact, exists and that the party being sued is in breach of that contract.
However, in California, foreclosure actions are not, technically, considered to be actions for breach of contract, even though breach of a promise to repay money which is secured by real estate may, itself, constitute breach of contract.
California has adopted a comprehensive statutory scheme for the regulation of foreclosure actions including, among other things, the “one form of action” rule and statutes relating to deficiency judgments, all of which restrict the legal options which are available in California to mortgage lenders who seek to enforce their mortgage contract rights.
Thus, California state courts, and federal district courts located in California when applying California law, have consistently held that California law does not require a foreclosing lender to “show-the-note” before proceeding with a foreclosure. Rather, such lenders can demonstrate a right to foreclose with other – and often more readily available – documents.
Some bankruptcy courts in California and elsewhere, however, have taken a different approach. In the case of In re Vargas, 396 B.R. 511 (C.D. CA, filed Oct. 21, 2008), bankruptcy judge Samuel L. Bufford held that Mortgage Electronic Registration System, Inc. (MERS) could not be released from bankruptcy’s automatic stay of all collection activity in order for it to foreclose on a home because the company had provided “no evidence as to who owns the note, or of any authorization to act on behalf of the present owner.” Reportedly, more than a dozen courts, including the Supreme Courts of Guam and Kansas, have cited Vargas favorably.
One explanation for the different treatment “show-the-note” cases have received in California state courts and federal district courts located in California, on the one hand, and, bankruptcy courts in California and elsewhere, on the other, is simply that federal bankruptcy law sets a higher legal standard than does California law when it comes to what procedures a lender must follow when foreclosing on a secured note.
Because a lender’s ability to foreclose may turn on upon which court (state/federal district or bankruptcy) or which law (state or bankruptcy) applies to a particular case, it is important to obtain legal representation prior to challenging a foreclosure action.
*Anthony F. Earle, Esquire is a California attorney who practices in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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11.13.10
Posted in Litigation, Real Estate Law at 10:27 by Administrator
Q. I am a California homeowner who is facing foreclosure. I would like to try to obtain a loan modification so I can save my home. Are there any California state laws which might help me? What are my options if my lender violates California foreclosure law?
A. The California Foreclosure Prevention Act (FPA), which was enacted in February 2009, provides extra time for borrowers facing foreclosure to work out loan restructurings. In addition to the usual 90-day period which is required to complete a foreclosure, the FPA requires lenders delay foreclosures an additional 90 days and pursue alternative courses of action during that time.
Lenders, however, may obtain an exemption from the additional 90-day period by demonstrating to the commissioner of a state licensing agency that the lender has in place a foreclosure prevention program designed to keep owners in their homes, when possible.
It has been said that without a remedy, there is no right. So let us look at how the FPA can be enforced.
Manatu and Lucy Vuki lost their Buena Park, California home to foreclosure. When HSBC Bank, the Viki’s former lender and buyer of the Vuki’s property at the foreclosure sale, sought to evict the Vukis, the Vukis responded by suing HSBC Bank for having allegedly violated the FPA. As part of their litigation strategy, the Vukis petitioned the California Court of Appeal for a writ which, if granted, would have stopped or delayed the eviction.
The Court of Appeal found that enforcement of the FPA’s provisions is, by statute, committed to the commissioner of the relevant state licensing authority. The court noted that the FPA’s statutory language provides that: “[a]ny person who violates any provision of [the FPA] shall be deemed to have violated his or her license law as it relates to these provisions.” Because violation of the FPA constitutes a violation of professional licensing law, the court held that the FPA “makes enforcement a matter of losing a license.” Vuki v. Superior Court (HSBC Bank USA), G043544, Fourth Appellate District, Division Three (October 29, 2010).
In other words, homeowners/borrowers may not sue their lenders for violating the FPA, because the FPA is enforceable only by the state, through administrative actions taken against professional licenses.
Although there exists no private right of action for enforcement of the FPA, other legal options may be available to homeowners/borrowers who seek to prevent foreclosure. As with any legal matter, an attorney can be most effective if retained early in a case, rather than later.
*Anthony F. Earle, Esquire is a California attorney who practices in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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